Day nursery valuations are often complicated to understand and seem to defy logic but they neednāt be; here we give you an insight into the process behind the numbers.
When the time comes to sell your nursery, one of the first steps is to seek a professional valuation. It can help to determine the type of buyer you might be looking to give you an idea of what you could gain from the sale.
Like many aspects involved with a nursery sale, valuations can be quite complicated. It is also important to justify the final figure produced, as this will help a potential buyer secure the required amount of funding from the bank and encourage a smooth transaction without late negotiations. It is therefore beneficial for the vendor to have at least a basic understanding of how their valuation has been reached.
The Calculation
In order to measure the value of a day nursery, valuers require several numbers associated with the business. These include annual turnover, local authority funding level, current occupancy, current staff costs and other costs like rent and meal provision. From here, the EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) is calculated. In essence, this is the true operating performance and profitability of the nursery whereby all non-cash costs are removed from the accounts, including any capital investments and expenses. It also removes any costs that will not be incurred by a new owner, such as a spouseās salary.
The EBITDA value is then multiplied by a factor determined by the the market at the time, in order to provide an initial valuation. However, this doesnāt always provide a viable investment on a turnkey model. Instead, the total adjusted income for a full-time manager is recorded and an adjusted EBITDA multiple used on this figure instead.
